The ideal location to establish an IP structure is one that can serve the organization’s business strategies/model, safeguard and protect its IP and contribute to its tax optimization. Cyprus offers an efficient IP tax regime coupled with the protection afforded by EU Member States and by the signatories of all major IP treaties and protocols.
The Cyprus IP tax regime
The IP tax regime covers a wide range of intangibles, including:
- Copyrights, which may take any of the following forms: literary works, dramatic works, musical works, scientific works, artistic works, sound recordings, films, broadcasts, published editions, databases, publications, software programs
- Patented inventions
- Trademarks (and service marks), designs and models that are used or applied on products
The above is a non-exhaustive list .Note, is not mandatory to register your IP in Cyprus in order to benefit from Cyprus Tax regime.
Tax benefits of Cypriot IP companies
The new provisions provide exemptions from tax of income related to IP. More specifically:
- 80% of worldwide royalty income generated from IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax
- 80% of profit generated from the disposal of IP owned by Cypriot resident companies (net of any direct expenses*) is exempt from income tax
- Any expenditure of a capital nature for the acquisition or development of IP is claimed as a tax deduction in the year in which it was incurred and the immediate four following years on a straight-line
- All the above exemptions are also available for IPs acquired or developed before January 2012. Cyprus wide double tax treaty network and access to the EU Interest and Royalty Directive, serve as additional means for the group to achieve tax optimization when it comes to IP exploitation through Cyprus.
Example
Assume that a Cyprus IP company licenses its IP to its operating foreign Companies and in return it receives royalty income of €100.000 per year.
Annually Royalty Income received is Euro 100,000
Direct Expenses Euro 20,000
Net Income Euro 80,000
80% Deemed deduction 80,000*80% = (64,000)
Taxable Income is Euro 16,000
10% Corporate Tax 16,000*10%= 1,600
Therefore the actual payable tax is only 1.6% on the total gross amount.
Cyprus is signatory to the following international conventions relevant to IP:
- European Community Trademarks
- Convention Establishing the World Intellectual Property Organization (WIPO)
- The Madrid Agreement Concerning the International Registration of Marks (the Madrid Agreement) and Protocol to the Madrid Agreement
- The Patent Cooperation Treaty
- Berne Convention for the Protection of Literary and Artistic Works
- Paris Convention for the Protection of Industrial Property
- Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms
- WIPO Performance and Phonograms Treaty
- Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations
- Trademark Law Treaty
- WIPO Beijing Treaty on Audiovisual Performances
